Many major businesses use the strategy of adding a holding company to their corporate structure. However, you can benefit from this strategy even if you run a small business. Of course, it is crucial to understand what such a company is and the benefit it offers.
So, here is a guide to help you understand the basics of a holding company and if you would benefit from it.
Holding Company Explained
Before we move on to the benefits, you must understand what a holding company is. In simple terms, it is an incorporated company that is used for holding investments. These investments include:
- Shares in private and public companies
- Real estate
- Interest earning investments
- And much more
So, unlike your regular corporate structure, this company will not operate a business. Instead, it will hold the investments for your business.
Who Would Benefit From Using A Holding Company In Canada?
You might wonder how you would benefit from incorporating a holding company into your structure. Well, if you want to reap the following benefits, then this strategy might be the ideal choice for your business:
Anyone that wants to protect their assets can hold them within a holding company instead of their operating corporation. Doing this will help keep your assets safe from creditors in Canada. So, if anything happens to your operating company, your assets will still remain safe within the holding company.
Many large businesses want to transfer the ownership of their business and assets to the next generation. If you also want to make this happen, then a holding company can help you facilitate the succession planning you require. So, you won’t have to worry or be concerned about the transfer of ownership in case anything happens to the owners or company.
Claim The LCGE
The LCGE is the Lifetime Capital Gains Exemption, and there is a specific criterion you have to meet to claim this exemption. The best part is that a holding company can help you meet the criteria and receive this exemption. So, if you want to claim the LCGE, be sure to consider this route.
Lower Rate Of Tax
In many cases, personal tax rates are much higher than the ones levied on corporations. This is why you can hold your investments in a holding company. It can help you enjoy a lower rate of tax so that you can save money in the long run.
That was everything at a high level you needed to know about who would benefit from using a holding company in Canada. If you want to enjoy these benefits, you can incorporate a holding company into your corporate structure. Once you do, you will get a lot of use out of it for a long time to come.
However, we recommend that you consult with qualified professional accountants before taking this step. It will enable you to make an informed decision for your business in Canada.